Index futures in the S&P, Nasdaq, and Dow Jones dropped modestly on Tuesday morning (-0.31%, -0.69%, and -0.65% respectively compared to fair value, as of 11:08 AM ET)[1] and gold prices shot up to a record $2000 before lightly reversing. These indicators signify that investors are now shifting to a moderately defensive paradigm after the earnings rush over the past several weeks. The expectation that growth will slow is in response to earnings reports by several key index components. McDonald’s (MCD) Q2 release reported a fall in revenue of 30% compared to Q1, making it the company’s largest miss in more than 30 years.[2] Office supply and PPE manufacturer 3M (MMM) also missed estimates for revenue, as demand for equipment such as face masks failed to make up for a slowdown in sales of office products. Other companies such as Visa (V), Advanced Micro Devices (AMD) and Dexcom (DXCM) are slated to report early this week as well. [3]

Expectations of slowed growth are also contingent on the GOP’s proposed coronavirus stimulus plan, the Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act, that was introduced by Republicans to the Senate floor on Monday. The proposal would add roughly $1 trillion in aid through small business loans, liability protections, and an additional $1200 stimulus check for qualifying Americans. Notably, the HEALS Act only provides $200 per week in enhanced benefits while prompting states to enact policy to provide 70% wage replacement to unemployed citizens. Democrats aim to keep the current $600 weekly stipend, believing that its immediate reduction will hurt unemployed and low-income workers. As prior benefits expire and politicians continue to negotiate, experts foresee lower consumption and greater uncertainty among Americans, potentially damaging businesses in the coming weeks.[4]

While both financial and political outlooks forecast a decline in stock market growth, such a reversal is expected to be modest at worst. However, given the uncertainty of the coronavirus environment, investors still need to remain diligent, especially as more companies release quarterly reports in the coming days.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in this index.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The market is unmanaged. Investors cannot directly invest in the index.

Craig J. Ferrantino is a Registered Representative offering Securities and Advisory Services through UNITED PLANNERS FINANCIAL SERVICES, Member FINRA, SIPC. Craig James Financial Services, LLC and United Planners are not affiliated.

[1] Data according to CNN Business Pre-Market Trading. <https://money.cnn.com/data/premarket/> Accessed 28 July 2020.

[2] Lucas, Amelia. “McDonald’s Revenue Falls 30% Progress at U.S. Restaurants.” CNBC. 28 July 2020. <https://www.cnbc.com/2020/07/28/mcdonalds-mcd-q2-2020-earnings.html> Accessed 28 July 2020.

[3] Carson, Ed. “Dow Jones Futures Signal Stock Market Rally Retreat Amid Earnings Rush.” Investor’s Business Daily. 28 July 2020. <https://www.yahoo.com/news/m/86892a3c-ae2d-3bb0-b0cb-72433b45d8bd/null> Accessed 28 July 2020.

[4] Foran, Clare & Mattingly, Phil. “McConnell Formally Unveils $1 Trillion Senate GOP Stimulus Proposal.” CNN. 27 July 2020. <https://www.cnn.com/2020/07/27/politics/senate-republican-stimulus-proposal/index.html> Accessed 28 July 2020.